Valley of Decisions: Biography and Essays in Honour of Hon. Justice Iorhemen Hwande

Chapter Six - Incorporating an Insurance Company in Nigeria: Legal and Economic Imperatives

Chapter Six Incorporating an Insurance Company in Nigeria: Legal and Economic Imperatives Dr. Alma Imbwaseh* Introduction The Englishlawofcontract and a fortiori, the Nigerianlawof contract, has its roots goingbackto theMiddleAges. Mostof the general principles were developed and elaborated inthe eighteenlhandnineleenthcenturies.Theseprincip1esandped1aps evenmore, the general approach ofthe courts to contractual questions, may be referred to as the traditional or "classical theory" ofthe Law of Contract. Though, the Law of Contract has undergone some fundamental changes in the twentieth century, it is quite impossible to understand the modemlaw of contractwithout some knowledge and appreciation ofthe background and origins ofthe classical theory ofthe law. • LL.B (Hons), LL.M (ABU), Ph.D, BL Dean, Faculty of Law Benue State University Makuxdi. 21 22 Valley ofDecisions The classical theory ofthe law of contractwas developed in the heyday oflaissez-faire. This theory posited that menhad an inalienable right to make their own contracts for themselves and thatthe law shouldinterferewith contractual situation as little as possible.1 To the judges ofthat era, the function of the court in relation to a contractual obligation was largely an unwarranted one. The main object ofa contract, in viewofthe classicaltheorywasto enablepeopletorealisetheir wills or inmore prosaiclanguage, to leave them to go onwith theirbusiness, to lead theirownlivesunhamperedbygovernmentalinterference . As applied to theLaw ofContract, these ideas meantencouraging almostunlimited freedom of contracting, and thus the shibboleths 'freedom of contract' and "sanctity of contract" became the foundations onwhich the whole law of contract wasbuilt. Insurancebeing one sort ofa contract, this analysis is apposite. The regulation ofinsurance servicesinvolvestherequirement ofminimum capital from insurers, statutoryreserves, control onpremium rates and settlementof claims. The Philosophical Basis ofthe Modem Law ofIncorporation TheInsuranreAct2004:providesthat"nopersonshallcornmenre orcarryonanyclassofinsurancebusinessinNigeriaexcept... a company duly incorporated as a limited liability company underthe Companies andAlliedMattersAct, 2004". Itmeans, therefore, either a private company or a public company can validly carry on the business of insurance in Nigeria. It is against this backdrop that this analysis of the philosophy 1 Atiyah P.S. An Introduction of the Law of Contract (Oxford University Press London. 1981) p. 4. 2 Section 3 (1) (a) Insunmce Act, 2004. Incoporating an Insurance Company in Nigeria 23 underlying the law ofincorporationis relevant to insurance companies. The constitution3 ofa modem company consists oftwo documentsusuallyboundup as one-theMemorandum andArticles ofAssociation. These are all that is prescribed by law.' There is considerablefreedom ofchoice inthe drafting ofthe original documentsbutthis freedom is more restricted when it comes to constitutional change. Inthe case of the memorandum ,there are considerablerestrictions onchangebuteven in the case of the articles, freedom is curtailed to protect minorities from oppression. The purpose ofthe constitutionis to provide for the distribution of profit, risk and control within the company. Profits are tobe distributed in accordance with shareholders' rights which maybe specifiedin the memorandumbut nowadays these are more usually set out inthe articles. The memorandum sets out the basis of liability of members -limited or unlimited and limitedby shares or guarantee. Allocation of control between the company in general meeting and the board ofdirectors is dealtwithinthe articles. However, profit and control and allocationofriskamongsttheproprietorsperse are often the subject-matter ofshareholders' agreements where these are used. Shareholders' agreements are mainly used in the case of private companies and joint ventures betweenlarger companies. Inbroad terms, the memorandum governs the relationship between the company and the outside world. The company identifies the nameby which it is first incorporated and the purposes and objectsfor whichitis formed. Originally;incor3 Farrar J.H; Farrar's Company Law (2nd edition Butterworths, London. 1988) p.79. 4 Section 3S (2) (a) Companies and Allied Matters Act, 2004. 24 Valley ofDecisions porationwas regarded as a privilege and there was a natural tendency onthe part ofthe courts to restrictit. This led to the developmentoftheultravires doctrinewhichprotected some creditors atthe expenseofothers. Shareholders andintravires creditorswere protected from unauthorised depletionofthe capital fund. Thehistory oftheultravires doctrineis a history ofthestrugglebetweentwocompetingmode1sofincorporation that is, the legal privilege model and the freedom of contract model.5 Whereas the legal privilege model emphasizes responsibility throughrestrictionandthefulfilmentofconditions, thefreedom ofcontractwhichis premised onthe laissez-fairephilosophy; emphasizesutilityoftherightstoincorporate andthe freedom of choice of incorporation under a liberal economy state concerned withfacilitating rather thanrestrictingbusiness. The legalprivilegemodelis theoldestmodel ofincorporation and dates back to the middle ages. Indeed, early business corporations were often regarded as the arms ofthe state or means of extending state control. This model continued as the dominant model even after the liberal reforms of 18441856inBritain . The origins ofthe freedom model perhaps lies in the 1844Act, although some commentators stressed that this represented stateinterventionaswell. Itgrewinstrength as a resultofthe...